Contemplating smoking your way out of the tariff gloom? Think again.
Sweeping tariffs imposed by U.S. President Donald Trump on Wednesday are set to increase prices of cannabis products in the country, as many firms rely on Asia for manufacturing. The latest levies will stack up on any duties imposed earlier on countries like China, Canada, Mexico and the EU.
Items such as tins, vape hardware and specialized glass remain difficult to source domestically, and companies remain largely dependent on Asia particularly China, analysts and executives said.
"Those relying on exports from nations with tariffs, such as China, will need to take a serious look at how they might absorb the extra costs or alter partnerships," said Bryan Gerber, CEO of Hara Supply, the world's largest manufacturer of cones and combustibles.
Shares of cannabis firms such as Tilray Brands (TLRY.O), Canopy Growth (WEED.TO), Organigram (OGI.TO) and Terrascend (TSND.TO) were trading down between 5% and 10% on Thursday.
Most of these tariff costs will be passed to consumers. The higher costs will likely drive more consumers to the illicit market, further denting margins for legal cannabis firms.
"Most cannabis businesses don't have the margin flexibility to absorb a 10%-15% increase," said Mike Forenza, managing partner at AE Global, which makes packaging products for cannabis firms.
Higher costs have already hit demand.
"Manufacturers are passing these tariff cost down the line and it will ultimately impact our customers. We are starting to see a softening in the market and inbound order rates starting to slow," said Brad Wasserstrom, president of Wasserstrom Co, a supply chain firm working with cannabis companies.
The ongoing North America trade spat could exacerbate problems. Things used to grow cannabis crop including compost and peat are imported from Canada and tariffs will make them costlier.
"We work with a manufacturer who imports their glass from China, the wood is imported from Canada, and it's put together in Mexico all before it's distributed in U.S. How is that getting taxed?" said Wasserstrom.
"That's a challenge for everyone and ultimately it will come down to the consumer level."
